You Know What You Know

This blog is dedicated to Dr. Daniel Kahneman, the Princeton University psychologist who died March 27, 2024. He and Amos Tversky upended traditional economic assumptions that people act rationally. In 2002, Kahneman won the Nobel Prize in Economic Sciences. (Lahart, 2024).

Your life is one of being bombarded with information. Kahneman and Tversky warned that we do not approach knowledge with impartiality. We address knowledge with built-in cognitive biases.

Kahneman’s popular book Thinking Fast and Slow (2011) makes a distinction between two systems in our brain. System 1 is fast, instinctive, and emotional. He doesn’t state this in the book, but System 1 involves the limbic region of the brain, and the amygdala is a major component. System 2 is slower and more logical. He doesn’t state this, but he is referring to involvement of the cerebral cortex region of the brain.

If You Do Not Act Now....

We are familiar with statements that failure to act decisively will incur negative consequences: “This opportunity will expire in 20 minutes!” “If you fail to provide a discount, this prospect will buy our competitor's product.”

“Act now” is designed to stimulate System 1 into framing information in a binary way: Act now and win or hesitate and lose.

Kahneman and Tversky conducted research demonstrating that the pain of loss exceeds the pleasure of gain. When System 1 frames the issue as Act now or lose, it loads the dice. Your System 2 kicks in later to do a reality check, if you are willing to listen to it.

Confirmation Bias.

Kahneman said, “When you have an interpretation and adopt it, then you force everything to fit that interpretation.” This is the essence of confirmation bias.

Consider tie popular business maxim "Culture eats strategy for breakfast.” The statement is attributed to legendary management consultant Peter Drucker. This knowledge fits our values.

How to Structure “Culture Eats Strategy for Breakfast.”

Alex Edmans is a professor of finance at the London Business School. In his book May Contain Lies (2024), he cautions that knowledge is not fact. Edmans suggests two steps to ascertain what is factual.

The first step is to ask for counter-facts. “Do I have any evidence that successful strategy was more important than corporate culture?” We have experienced successful private equity investments in entrepreneurial companies where the private equity partners forced revenue growth. Corporate culture changed for the better or the worse. But culture followed strategy.

The second step is to ask, “What evidence supports it?”

Where You Can Find Evidence.

Try your search engine. Artificial intelligence can be a useful impartial tool for gathering evidence. Another useful tool is to go to scholar.google.com and search for "meta-studies.” These are studies of academic studies. You can always find one study that will confirm your bias. Focus, instead, on studies that study many studies.

Taking these two steps provides System 2 time to weigh in on System 1’s confirmation bias.

After we engaged in Edman’s two-step analysis, we concluded that a powerful corporate culture aligned with corporate strategy is more likely to achieve successful results. But culture is not always more important than strategy.

Structuring Peripheral Perspective.

Your vision limits your reality. As the speed of a vehicle increases, the driver’s peripheral vision decreases. As the speed of business increases, leaders’ peripheral vision decreases. Leaders focus on direct competitors, customers, potential customers, and direct reports. Everything else is peripheral.

Cross-Cultural Psychology Essential Reads

Living and Loving in a Diverse Society

Documenting Cultural Lineages

For example, the Finnish company Nokia was once Europe’s largest maker of smartphones. In 2008, Nokia leaders identified Blackberry as its biggest competitor. Apple came out with its iPhone in 2007, but Nokia leaders saw it as a peripheral competitor: it had no real keyboard and would therefore not appeal as a business tool.

We were working with Nokia during this time and noticed that many of the company’s top engineers had purchased iPhones for their personal use. They found Apple devices more flexible than Nokia products.

This was important peripheral information. Nokia leaders didn’t pay attention. In 2013, Nokia sold its mobile device division. In 2016, Blackberry stopped producing phones.

When business is moving quickly, all of us can be blind to dangers/opportunities at the periphery. Direct reports may be too inclined to tell bosses what bosses want to hear.

We recommend you find a formal group of peers that contains peers you respect. Make sure the group contains peers who view the world differently. An example for CEOs would be the Young Presidents Organization (YPO) or Vistage. Our firm hosts a monthly forum for chief HR officers from a range of industries as well as a monthly forum for board directors. The goal of all the groups is the same: Enhance peripheral vision.

If you cannot find a formal group that provides a peripheral perspective, can you begin to have regular meetings outside your company with people who do not share your values?

Summary and Conclusions.

You know what you know. In this blog, we have provided suggestions to help you think about what you know.

These ways include two questions to ask and a recommendation that you actively seek perspectives that force you to look at the periphery.